Netflix stock: Fold this house of cards

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

Shares have nearly doubled so far this year and aren't far below where they were in mid-September of 2011.

If you've stuck with Netflix shares since those dark days of price hikes, subscriber defections and the ill-fated (and quickly abandoned) plan to rebrand the slowly dying DVD-by-mail service as Qwikster, you must be happy. Vindication may soon be here. Or will it?

I've written several times about why I think Netflix is overvalued. If you want to say that I'm wrong and don't know what I'm talking about because the stock has continued to surge, go ahead. But I'm Tom Petty. I won't back down. Netflix is trading at 160 times 2013 earnings estimates. That is not sustainable.

Sure, analysts have been busy raising their earnings forecasts now that the company has stopped the subscriber bleeding. But any investor looking to buy Netflix now, thinking that it's nothing but clear skies ahead, should look closely at this next series of charts.

This is what Netflix has done this year.

But investors rejoicing the Netflix double need to remember that the same thing happened with the stock at the beginning of last year. Exactly a year ago, Netflix hit a year-to-date intraday high of $133.43.

At that time, many analysts and investors were quick to declare that the worst was over for Netflix. But February 7 turned out to be the peak for Netflix's price last year.

Concerns resurfaced about how much money it was spending on international expansion, the cost of securing new deals with big media companies for content, and increased competition from the likes of Amazon (AMZN), Apple (AAPL), the Verizon (VZ)-Coinstar (CSTR) Redbox streaming joint venture, and Hulu, the online video firm owned by media giants News Corp. (NWSA), Walt Disney (DIS) and Comcast (CMCSA).

As a result, the floor quickly fell out from under Netflix in the spring, and shares plunged a staggering 60% by early August.

Now Netflix has once again come roaring back. This year's rally is merely an extension of the surge that began last summer. Netflix bottomed out on hopes that new content deals, most notably a big one with Walt Disney, meant that the company was clearly going to remain the leader in streaming video.

More recently, investors have been excited about the fact that Netflix has its own content to lure new subscribers, such as the Kevin Spacey show "House of Cards" and the long-awaited return of "Arrested Development", the cult comedy Fox canceled after three seasons.

So when you review all these charts, you should quickly realize that Netflix is not a stock for investors. It's really only one that hyper-vigilant day traders could love. Netflix has been a volatile stock and will likely remain so as long as it's a top target of short sellers. It can get squeezed higher on modestly good news when bearish investors rush to buy the stock to cover their positions.

And it often moves (to quote Bono) in mysterious ways on news that really isn't news. The latest example? There are hopes that Netflix will be added to the Nasdaq-100 once Dell (DELL) goes private. That could happen. But Netflix actually was in the index last year ... and was removed from it in December because of the stock's big drop.

Take a step back and look at this last chart of Netflix's performance over the past three years and change. Even with the ginormous rally year-to-date, the stock is still well below the all-time high it hit in July 2011.

Netflix may very well get back there one day. But it will likely be a nauseating ride.

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.